To understand the table, I will give a detailed example of Google (GOOG) below.
Sell the Google August 470 strike call option. The return if the stock is assigned at expiration is 2.25%, and if the stock is not assigned the return from writing this is 0.58% (or lowers the position by 0.58%). Based on the current options market, the contract will lose $56.80 (a gain of 25.2% on the premium) over the weekend as the stock sits inactive.
All data as of market close Thursday August 13, 2009.
|Company||Ticker||Strike||Return %||Protection %||Weekend Loss |
|Exxon Mobil Corporation||XOM||70||2.41||0.60||8.20|
|Wal-Mart Stores, Inc.||WMT||52.5||1.70||0.50||5.20|
|Johnson & Johnson||JNJ||60||0.71||1.24||5.20|
|The Procter & Gamble Company||PG||52.5||1.43||1.05||6.80|
|International Business Machines Corp.||IBM||120||1.44||1.09||16.00|
|JPMorgan Chase & Co.||JPM||43||2.40||2.17||11.00|
|General Electric Company||GE||15||6.81||0.43||2.20|
|Cisco Systems, Inc.||CSCO||22||2.93||0.65||3.20|
|Bank of America Corporation||BAC||18||6.88||1.00||4.40|
|Wells Fargo & Company||WFC||28||2.69||2.26||7.40|
|The Coca-Cola Company||KO||47.5||0.69||1.97||5.40|
|Philip Morris International Inc.||PM||47||1.87||0.65||5.20|
|Verizon Communications Inc.||VZ||31||1.26||1.39||4.40|
|Goldman Sachs Group, Inc.||GS||170||3.77||0.41||19.20|
As promised below is a list of 10 higher beta stocks. As you can see the more volatile the underlying stock, the greater the: return %, protection %, and loss the contract loses over the weekend.
|Company||Ticker||Strike||Return %||Protection %||Weekend Loss|
|Las Vegas Sands Corp.||LVS||14.00||13.03||5.75||8.80|
|Teck Resources Limited (USA)||TCK||28.00||5.18||3.03||12.00|
|Genworth Financial, Inc.||GNW||9.00||6.06||3.20||4.20|
|American International Group, Inc.||AIG||26.00||8.95||5.04||18.20|
|Wynn Resorts, Limited||WYNN||60.00||3.37||4.81||27.20|
|Barclays PLC (ADR)||BCS||25.00||6.22||1.18||6.20|
|Ivanhoe Mines Ltd. (USA)||IVN||10.00||14.65||2.80||5.80|
To better understand options in general, including this strategy, these percentage calculations, and other option strategies click here. As an owner of Bank of America, Citigroup, Goldman Sachs, Ivanhoe Mines, Las Vegas Sands, and Palm shares, I've written and traded many of these option ideas for the August options expiration. I will look to write out some more shares of Bank of America Friday on strength, especially after that huge day Thursday. These 6 stocks listed above are more volatile than many of the stocks listed in this article, and although they are more risky, they are much better for this strategy.
To reiterate a previous blog post: As the Volatility index is creeping back up, call option premiums should increase in value overall, protecting and giving an even higher return. I use this strategy to write my shares out on strength, and purchase them back on weakness (if I am profitable). For example: using this strategy has allowed me to cost average my position on Caterpillar down to $4.88 a share. Patience is the key to succeed with this strategy. If the stock gets called out, and you miss some of the upside, you can always use the buy/write option strategy to get the stock back for the following month. With the VIX at historic highs and call premiums exploding, selling deep in the money covered calls on my shares from September to December allowed me to trump the market, and actually make a profit.
All of these options expire on August 22; therefore the last trading day is Friday, August 21, 2009.
These are just examples and are not recommendations to buy or sell any security; if you're more bullish/bearish, you’ll want to adjust the strike price and expiration accordingly.
Keep in mind when using this strategy it is essential that broker commissions are low enough to profit from the position. Trade as many contracts as you can for a flat fee of $9.95 here. Yes it's true and no catch, I've traded 100 contracts at a time for a flat fee of $9.95!